Rentvesting is widely popular and mostly effective homebuying strategy which allows new homebuyers to break into the property marketplace without wrenching their savings. If you are a first-time buyer and looking for an affordable home within your budget, then it could be your best option.

Even though it is an excellent property investment strategy, there are pros and cons, and you should carefully consider those before making your final decision for Rentvesting.

Throughout this article, we will discuss some of these with proper reasoning to help in your decision-making process.

Before jumping right into the content, it is better to make the confusion clear about the Rentvesting.

What is rentvesting?

Actually, there is no exact definition of rentvesting.
In simpler words, it signifies renting a property where you intend to live (mostly in city areas) spending your savings and investing the rest of your money for another investment property, particularly in suburban areas, where the price is cheaper.

People who do rentvesting are generally known as rentvestors. One of the main reasons a rentvestor buys a property is for making their investment while living and renting to the tenants simultaneously.

Now, let’s jump into details of what are the advantages and drawbacks of rentvesting:

Pros of rentvesting

Freedom and flexibility

Rentvestor gives you the freedom to move to different home based on your situational changes, for instance, losing a job or getting a promotion etc. As well, moving into different homes requires less spending, efforts and time compared to selling and repurchasing a property. If you are not sure where you want to settle down for the long term, then Rentvesting could be your suitable option.

If you are a homeowner, paying off a loan or knotted down to a mortgage stuck you in a location while being a rentvestor, you are free to move around properties that suit you.

Access into the property market

One of the main benefits of rentvesting is, with spending a smaller amount of your deposit, you can enter into the market, especially if you are looking to invest your savings into any smaller investment property. Besides, you do not even have to wait for a longer time to buy a large building. That said, as soon as you are ready with your investment, you are prepared to be a part of the investment property market.

To secure a better lifestyle

Rentvesting could be your ideal option if safeguarding a better lifestyle without compromising is your main priority. If you are looking for an area where you can access all the lifestyle amenities (e.g. better school, safer neighbourhood, large house etc.), rentvesting can help you in this regard.

Through rentvesting, you can move to bigger houses, earn money from renting and build up your savings for your future home. Without facing hurdles like getting a loan or being debt, you can live on your dream house.

Read more: How to make your rental property more eco-friendly

Benefit from tax

The main benefit you will gain from rentvesting while living in your rental property is that you can deduct some expenses from tax.

The following are some of the tax-deductible rental expenses, approved by Australian Taxation Office (ATO) you can claim:

  • Body corporate rates
  • Advertising for tenants
  • Water charges
  • Maintenance and depreciation
  • Mortgage broker fees
  • Loan establishment fees etc.
  • Among these costs, you could benefit most from the depreciation from which you can reduce your taxable income and improve your cash flow from your investment.

    To grow the investment portfolio

    You will be benefited from your investment property if you are smart enough with the rentvesting. For example, if the rent income from tenants is high, you can earn some extra amount of money and using those in other ventures you can build up a good investment portfolio resulting in the growth of your capital and investment.

    To make your investment more secure, it is better to have proper landlord insurance for your property. In doing so, you can safeguard your rental income from any unexpected events or problematic tenants.

    Cons of reinvesting

    Ownership

    Apparently, rentvesting can make you the owner of the property you are buying, but thinking for the longer term, you are still a tenant with uncertainty to leave depending on the landlord' decide. As the house does not belong to yours, no matter how much you love your home, it will not be yours. That is why it will be even more difficult for you if you form an emotional connection with a house and the proprietor will make you move out.

    For these reasons, it does not appeal to many homebuyers, particularly who are looking for a permanent home.

    Less stability

    For how long are you going to stay in your rental property mostly depends on the leases. If your agreement is for a long-term contract, then it will be your stable option to go. On the other hand, if it is for a short-term period, you will have to deal with constant moving into different properties, which can be stressful for you.

    Capital gains tax

    Capital gains tax, commonly known as CGT, is not applicable for those who are the owner of a rental property. While CGT applies for investment properties and therefore being a rentvestor, you are not exempted from capital gains tax. Meaning that if you purchase a property for selling it in the near future, the profit you will gain from your selling will be subjected as capital gains tax.

    Time-consuming

    Rentvesting is a time-consuming property buying strategy. Being a rentvestor, you have to act both as a tenant and property owner, which means you have a deal with issues like difficult tenants and sometimes rent inspection.

    As a landlord, there are a bunch of responsibilities you have to undertake, which can eat away all of your time and your resources. Activities like screening tenants to stay on top maintenance requests to caring for your investment property will require you more time and money.

    Slow growth

    There is a slow rate of property investment growth in rentvesting. The main risk that involves rentvesting is if your invested money ended up with a lower return on investment (ROI), then it will eventually lower your capital growth. Sometimes, a small investment does not yield a substantial profit. It takes a long time, so in that case, if you are impatience about it, you would better skip the idea of rentvesting.

    Should you go for rentvesting?

    It entirely depends on you.

    Depending on your lifestyle and the available opportunities in your hand, you can decide whether to go with rentvesting or not.

    Briefly, if you are looking for an affordable option based on your financial circumstances and not looking for a long-term strategy for wealth growth, then rentvesting is your best option.

    On the other hand, buying a home instead of rentvesting will be your best option if you are looking for your permanent solution for a home.

    Author's Bio: 

    Chris Freeman has been writing articles and web content for more than four years. He has been writing on topics like sustainable living, digital lifestyle, media & technologies, self-development, lifestyle, community issues, and travel experiences. Find his recent works at Neutrino Burst blog and follow him on Twitter @chrisfree208